Market gloom infects IPOs

A lacklustre capital market performance, low investor confidence and weak inflows from the foreign institutional investors have taken a toll on initial public offerings in 2011. Sandeep Singh reports. All systems clear, but takeoff aborted

A lacklustre capital market performance, low investor confidence and weak inflows from the foreign institutional investors have taken a toll on initial public offerings in 2011.

As many as 15 IPOs that received approval from market regulator Stock Exchange Board of India (SEBI), that would have raised over Rs 25,000 crore in the first six months of 2011, did not hit the market - and their validity period has expired.

Companies such as Jindal Power, Reliance Infratel and Gujarat State Petroleum Corporation received SEBI approval for their IPOs.

During the period, Bombay Stock Exchange benchmark Sensex has fallen by 9.1% from the 20,561 that it was trading at in the beginning of the year, and the net FII inflow stood at Rs 2,670 crore (calendar 2010 saw total inflows of Rs 133,264 crore).

"A volatile or a declining secondary market is an enemy of the primary market," said Prithvi Haldea, chairman and managing director Prime Database. "Given the economic and political environment there are no visible factors that may bring sustainable cheer to the secondary market, at least in the near term."

"The first half of 2011 has seen missing FII inflows resulting in lukewarm market sentiment, it is taking a toll on the IPO market," said Jagannadham Thunuguntla, strategist & head of research at SMC Global Securities.

The market situation has even impacted IPOs that got listed at the exchanges in the last six months. As per NSE data, as many as 9 out of 12 companies that got listed in 2011 are trading below their allotment price.

So what can potentially bring a change in the primary issues and also lift the secondary market sentiments? Experts say that while a stable and rising Sensex is important, a lot depends on government's pricing of public sector issues.

"Despite the state of the market, if there is something that can trigger a turnaround and feel-good, it is PSU offers at attractive prices. PSUs should be offered only to retail, at huge discounts and distributed through not just brokers but banks, post offices et al," said Haldea.